GBP

Having started the week under heavy pressure from its peers, sterling has made modest gains in early trading. Following Fridays disappointing retail sales, the Confederation of British Industry (CBI) reported yesterday that optimism among British manufacturers has fallen at its fastest pace since the start of the coronavirus crisis as orders slowed and prices leapt. The CBI said its quarterly measure of confidence among factory firms plunged to -34% from -9% in the 3 months to January, its lowest since April 2020. A poll of economists released by Reuters yesterday showed further concerns for the UK economy ahead. Inflation hit a 30-year high last month at 7% and the poll suggested it would be higher this quarter, meaning households are facing the biggest cost of living squeeze since records began in the 1950’s. When asked what impact inflation would have on growth, 17 of 22 economists said it would be severe and one said very severe, while only four said it would be mild. A clear majority of the poll taken last week expect the Bank of England to hike rates by 25 basis points next month.

EUR

The euro is trading at a two-year low against the dollar in early trading as the greenback’s safe haven appeal continued. The single currency was also undermined by comments from Latvian central bank governor and European Central Bank policymaker Martins Kazaks who told Reuters that the ECB could end its stimulus programme earlier than planned but is unlikely to raise its main interest rate in July. Traders have brought forward expectations of the central bank’s first hike in more than a decade after ECB president Christine Lagarde’s interview last week opened the door after acknowledging mounting inflation risks. However, Kazaks pushed back on a July move because it would imply a complete winding down of the ECB’s bond purchases before that date. The ECB has long said it would end its bond purchases “shortly before” raising its deposit rate from -0.5% and Lagarde and other policymakers confirmed that commitment last week.

USD

The dollar was holding near a two-year peak this morning as concerns about the impact of China’s covid lockdowns held up the greenbacks safe haven appeal. The dollar index which measures the currency against its six main peers hit a two-year peak of 101.86 overnight, and has so far gained 3.3% this month, on course for its largest month of gains since November 2015. China’s financial hub of Shanghai has now been under strict lockdown for around a month, while Beijing has ramped up plans for mass testing of 20 million people and markets are growing increasingly worried that the lockdown could cause protracted supply chain issues.

Economic Calendar

13.30 USD US Durable Goods Orders
13.30 USD US Nondefense Capital Goods Orders